Open-to-Buy (OTB) Systems and Calculations An OTB system is a method used in inventory management where suppliers have the flexibility to purchase items dir...
Open-to-Buy (OTB) Systems and Calculations
An OTB system is a method used in inventory management where suppliers have the flexibility to purchase items directly from the buyer without requiring a formal purchase order. This gives suppliers more control over the purchasing process and can lead to potential cost savings.
Calculating OTB Costs:
OTB systems typically use the following key costs:
Supplier purchase price
Transportation costs
Warehousing costs
Purchase order processing fees
Handling and insurance costs
The supplier purchase price is the price paid by the buyer for the item. Transportation costs are the costs associated with shipping the item from the supplier to the buyer. Warehousing costs are the costs associated with storing the item in the supplier's warehouse until it is shipped to the buyer. Purchase order processing fees are the costs associated with processing the purchase order, such as payment processing and shipping documentation. Handling and insurance costs are the costs associated with handling and insuring the item before it is shipped to the buyer.
The total OTB cost is calculated by adding all of these costs together.
Benefits of OTB Systems:
Increased control over the purchasing process
Reduced procurement costs
Improved inventory management
Increased flexibility in meeting customer demand
Drawbacks of OTB Systems:
Increased risk of stockouts
Potential for late deliveries
Limited supplier selection
Increased paperwork